Over the past few years, global prices of basic food commodities have increased rapidly and pose a threat to food security, especially in developing countries. Today, food security is at the top of the agenda of many developing countries to minimize the implications of increasing food prices. But before that, they need to get their house in order, especially in integrating trade, development, energy and environmental policy.
“With the global economic crisis, many have forgotten the food crisis of 2008. But a sixth of the world’s poor go hungry every day. The food crisis remains very real, posing severe economic burden on developing countries, especially in Sub-Saharan Africa.
– Robert Zoellick, President, World Bank.”
The impact of the US financial crisis has not just confined itself to Wall Street but also affected the global food markets severely. Early in 2009, the world encountered a disastrous fall in food production as a result of the financial crisis and unfavorable weather conditions on a global scale. Food prices have been rising steadily, and the rising demand in emerging economies and widening demand-supply have all aggravated, raising concerns about food security globally. A recent estimate by the UN Standing Committee on Nutrition suggests that soaring food prices, combined with the global economic meltdown, left more than 1 billion, or one in six people on the planet, struggling to meet their basic food needs, leading to increased instances of disease and death.
In the meantime, in an endeavor to maintain their economic growth, China and other Asian economies were unleashing domestic consumption, long controlled by inflation concerns and demand for raw materials, especially food staples. Against this background, there is indisputable evidence that the world will run out of food next year. If this happens, many nations will face a record food inflation, which in turn will make panicking central banks dump their foreign exchange reserves to meet the cost of food imports. These developments will further cause the collapse of the US dollar, derivative markets and the global financial system. Thus, the drivers of the next financial crisis will be panic about food supplies and the dollar’s plunging value.
When countries turn into hoarders
The concerns about food supplies are no longer confined to history. With tight supplies and ever-increasing demand for food, now the issue of national food security is back on the agenda. Nations cannot take food security for granted any more, and food security has become as important as energy security. The fact is that even free-trading UK is worried about food and energy supplies, which is indicative of a much broader global trend. Similarly, many major powers are busy securing access to food, energy and, in some cases, even water. Thus, many nations are now reorienting investments to be able to feed themselves. Though they will not become self-sufficient in the process, at least they will decrease their dependency on the international market.
The US pursuit of energy independence has become a bipartisan dream, leading to a big jump in the production of biofuels made from grain, which has also added to the pressure on food prices. On the other hand, Middle East investors, mainly Saudis and the Gulf Arabs, have been taking huge tracts of land on lease in Africa in an effort to grow food that is reserved for their own region. However, food experts believe that the global economy is witnessing another surge in global food prices, which has little to do with supply and demand and much more to do with speculation by global financial companies like Goldman Sachs and commodities futures markets.
Even in Asia, the region’s rapid economic growth has triggered an increasing demand for food and energy and helped crate destabilizing spikes in prices. To cope with the rising food prices, the major economies in the region are reconsidering their food management policies. Food experts say that “this is a step that is likely to be the harbinger of a tougher stance by the region on the Doha Round of trade talks as well as on climate change issues.”
Spiraling out of control
In the US, there are reasons for grave concerns, as food prices jumped by 2.4% in March 2010. Inflation is rearing its ugly head. The National Inflation Association (NIA) warned its members that the sharp upswing in the US food inflation will soon lead to a situation as severe as that currently plaguing India. NIA accepted that it has long predicted food sector inflation, but never anticipated that it would spiral out of control this quickly. The spiraling food prices, along with widespread unemployment, have pushed 39.4 million Americans onto the food stamp program recently; the figure is up 22.4% from a year ago. February’s y-o-y increase in retail sale was not from improved consumer confidence, but from surging food and gasoline prices. Since unemployment is about to cross the 17% mark, many retailers are reluctant to pass on the burden of rising prices to the consumers.
But once they start doing so, the economy has to face mounting inflation and economic hardship, which will ultimately result in severe food shortages. Economists predict that the rising food inflation is just the beginning of what will ultimately become a disaster for Americans.
A daunting task
Increasingly, Indian policy makers are finding it difficult to feed millions of hungry people. With a record number of people living in hunger, the government’s efforts to reduce the burgeoning food subsidy remain a distant dream. Despite the healthy economic growth, around 250 million people are living in hunger and 47% children below the age of five are severely malnourished.
This is the reason why the country is ranked 66th among 88 vulnerable countries in the Global Hunger Index, prepared by the International Food Policy Research Institute (IFPRI). With food prices hovering around 18% higher, compared to this time last year, economists suggest that the government must undertake urgent measures that would directly bolster the productivity of small farms to avoid the worsening food crisis and potential macroeconomic instability. Saumitra Chaudhuri, a member of the Planning Commission and Prime Minister’s Economic Advisory Council, says, “If prices continue to rise in this fashion, it would undermine virtually every other objective. It is not something one can tolerate without end.”
Growing food insecurity
The rising global prices of wheat, soybean, corn, and rice have contributed significantly to the food insecurity worldwide, particularly in the developing world, where one-sixth of the world’s population lives on less than $1 per day. At the household level, increasing food prices have the greatest effect on poor and food-insecure populations, who spend 50% to 60% or more of their income on food. According to a study by IFPRI, the growing food insecurity poses a huge threat to South Asia and small inlands in the pacific region, where poverty and hunger are particularly serious. Despite the efforts to accelerate economic growth and reduce poverty, the region, as a whole, has achieved limited progress and moved very slowly towards the target of halving the number of people who live in hunger by 2015. Food experts say that “after falling for decades, the number of hungry people in the world is rising again, and melting glaciers and falling water tables in some of the world’s biggest grain-producing nations threaten to dramatically worsen the problem.”
Experts opine that food prices are unlikely to fall back to previous levels, partly due to structural shifts that have taken place, such as changed consumption patterns, migration to the cities, and volatile weather patterns. They say that even if the prices fall now, it will not come as a relief to the 119 million more people who have already been pushed into hunger by the price rises and that they need help now. Furthermore, the current crisis has exposed an unacceptable level of vulnerability that must be addressed.
A new green revolution required In order to overcome the food crisis, Food and Agriculture Organization (FAO) of the United Nations has suggested that the global economy requires a brand-new green revolution as well as more transgenics and free trade. The new green revolution will not succeed without new tools and should draw on the best of the technologies that have doubled production over the past 30 years. FAO stresses on alternative approaches and improved farm management and information systems to minimize the environmental damage from external inputs, and benefits to poor farmers and marginal areas bypassed by the original green revolution. To spark a new green revolution, FAO says, the national governments will need to work with civil society and the private sector in several key areas, including policies, improved extension service, training and research facilities. On the other hand, the global food crisis seems to have given encouragement to the GM crops, which have sharpened their grandiloquence that food security cannot be met without GM foods.
The way forward Going ahead, the prices of food commodities will be more and more volatile than in the past and stay higher. Countries which are heavily dependent on food imports will face enormous challenges to feed their people. Becoming self-sufficient is a distant dream for them, but they have to ensure their food security by producing for themselves.
Increasing the agricultural productivity around the globe is crucial and should become a top priority in a country’s development strategies. The Organization for Economic Cooperation and Development (OECD) discussion paper, “Food and Agricultural Policies for a Sustainable Future,” warns that as the world population touches an estimated 9 billion by 2050, ensuring food security will become even more important. In developing countries, this could mean increasing food availability by almost 60% by 2030.
For sustainable food security, policy makers must address the issue of market distortions and work towards creating truly open markets where priorities are set not just by governments but also by civil society, farmers, NGOs and stakeholders, with all working together to establish a diagnosis of the situation and fixing of priorities. Today, food security is at the top of the agenda of many developing countries to minimize the implications of increasing food prices. But before that, they need to get their house in order, especially in integrating trade, development, energy and environmental policy.
N Janardhan Rao, Senior Economist.
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